- Expert Roundup
- CFR fellows and outside experts weigh in to provide a variety of perspectives on a foreign policy topic in the news.
The United Kingdom’s June 23 referendum on whether to remain in the European Union has the potential to fundamentally reshape Europe. Just how a British exit, or "Brexit," would effect the UK’s economic trajectory, national security, and relationship with the broader EU remains a topic of heated debate.
In addition to creating a recession, a Brexit "would weaken the cohesion of the United Kingdom," writes CFR Senior Fellow Sebastian Mallaby. An impaired EU would be less able to collaborate on cross-border challenges from migration to Russian opportunism, and Mallaby cautions that "the effects are likely to be felt for a generation."
The Leave camp is focusing on the need to reduce immigration from the EU, writes Open Europe Co-Director Stephen Booth. However, given the UK’s aging population and mounting labor shortages, the country would struggle to do so. "Openness to immigration is a fact of life for prosperous economies in the twenty-first century," Booth maintains.
A Brexit also poses major risks for the UK’s financial sector, since "London has long served as the financial springboard into the rest of Europe," explains CFR Senior Fellow Robert Kahn. A "fragmentation of financial markets" between the UK and the EU is likely, and reduced foreign investment could weaken growth.
For Capital Economics Chairman Roger Bootle, however, "the status quo is unsustainable." Leaving the EU would give the UK more control over its budget, immigration, and trade policy, and allow it to avoid harmful EU decisions. "The EU has become a club of which the UK should not want to be a member," he argues.
If the UK were to leave, however, "the immediate winner would be Russian President Vladimir Putin," contends UK defense expert Jonathan Eyal. Old tensions between the EU and the NATO alliance would be revived while anti-EU sentiment would rise. "A worse recipe for European security can hardly be imagined," Eyal writes.
The United Kingdom’s June 23 referendum on leaving the European Union is arguably scarier, and more consequential, than November’s U.S. presidential election. If the UK votes to leave the EU, the effects are likely to be felt for a generation.
As many analyses have suggested, the first result of leaving the EU would be a prolonged British recession. But a Brexit vote would also have three consequences of greater long-term importance.
First, it would weaken the cohesion of the United Kingdom. The pro-EU Scots might seek to secede from the UK in order to join the union. The hard-fought 2014 plebiscite on Scottish independence turned on the economic benefits of remaining in the UK, but if a new referendum takes place against the backdrop of a UK recession, that argument could lose its force. There would be questions about Northern Ireland’s status, too, since the territory’s viability depends on an open border with the Republic of Ireland to the south. But Brexit would imply customs and passport checks along the inter-Irish border.
“Most importantly, a Brexit would damage an idea that matters beyond Europe.”
Second, a Brexit would test broader EU cohesion. Other EU countries that, like the UK, have refused to adopt the euro currency would feel less comfortable about remaining in the union if the UK were out of it. Countries like Denmark, which has benefited from the UK’s past insistence that eurozone members should not impose their priorities on non-euro countries, would feel particularly vulnerable. Meanwhile, populist anti-EU movements across the continent would draw energy from the example of the UK’s departure. The spectacle of a relatively successful EU member exiting the club would legitimize that option for others.
Finally, and most importantly, a Brexit would damage an idea that matters beyond Europe. In a world of cross-border challenges—from climate change to Russian opportunism, migration, and pandemics—countries must collaborate, and the EU is an experiment in how far such collaboration is possible. Some EU projects, notably the common currency, have proved too ambitious; others, notably the single market, have worked well; still others, such as passport-free travel, are debated by reasonable people.
But for the UK to reject the very idea of pooled sovereignty, despite the fact that it is already exempt from the single currency and the no-passport arrangement, would be a terrible step back. There is a political deficit in the management of globalization. Nation states need to work together more—and find a way of selling that to their electorates.
Stephen Booth, Co-Director, Open Europe
Tapping into public anxieties over immigration is supposedly the Leave camp’s best hope of victory in this referendum. There is no denying that the free movement of EU citizens is by definition difficult to "control"—a central Leave campaign theme. But it is far more complicated than that. There are limits to what any government, inside or outside the EU, can reasonably do to control immigration given the tradeoffs involved.
On the Leave side, proposals range from imposing stricter limits on EU immigration (and, in some cases, damn the economic consequences) to altering the mix in preference of higher-skilled workers. There is also the unconventional gambit of allowing greater numbers of non-EU migrants to enter the UK.
On the Remain side, high levels of immigration are presented as the price that must be paid to access the EU’s Single Market. Simultaneoulsy, aggregate benefits are cited as prima facie evidence that it is inherently positive—despite the cultural sensitivities involved and the fact that immigration can cause localised pressure on public services and disruption effects: It tends to increase wages at the top end of the labor market and put downward pressure on pay at the lower end. Meanwhile, Prime Minister David Cameron’s government maintains its "ambition" to reduce immigration from hundreds of thousands to the tens of thousands, without a credible plan.
“Openness to immigration is a fact of life for prosperous economies in the twenty-first century—whether they are subject to the EU’s free movement rules or not.”
If the UK remains in the EU, it is likely to remain a popular destination for EU citizens for many reasons: the English language, a flexible labor market, and a strong (and underappreciated) record of integrating immigrants from different cultures. While some areas have struggled to integrate immigrants, and the public is concerned about a lack of investment in public services and housing, the UK economy is currently outgrowing many of its neighbors in the EU, and its unemployment is lower. These are not things to complain about.
While there would be political pressure to reduce immigration following a Brexit and greater tools to do so, such a reduction would pose challenges. Businesses are already complaining of labor shortages given the UK’s record high employment rate. In addition, Britain must pay for its aging baby boomers. Immigration helps to lower the ratio of retirees to younger workers and thus improves the UK’s fiscal position, which would otherwise require spending cuts, tax rises, or increased productivity. The depth of any new economic agreement with the EU could also depend on the extent to which the UK accepts free movement.
Ultimately, the truth is that openness to immigration is a fact of life for prosperous economies in the twenty-first century—whether they are subject to the EU’s free movement rules or not.
Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics, Council on Foreign Relations
A British vote to leave the European Union on June 23 would be a risky bet for the United Kingdom and the global economy more broadly.
A Brexit would likely shake both UK and international financial markets, with investors responding to a weaker pound, a lower growth outlook, and substantial capital outflows. New agreements to decide the future relationship of the UK and the EU could take years to negotiate, adding to market uncertainty at an already fragile moment for the global economy.
These market changes could have profound implications for the city of London. First and foremost, a Brexit would call into question London’s financial preeminence. London has long served as the financial springboard into the rest of Europe, largely because EU membership allows banks and other financial institutions based in London to sell their services across the continent without needing multiple regulatory approvals in each country. This so-called “single passport” to the EU market for financial services is at the center of the UK’s comparative advantage as a global financial center.
“A fragmentation of financial markets is likely, with banks moving operations out of London.”
Perhaps, as the Leave advocates argue, alternative agreements can be negotiated that preserve London’s dominant role in Europe—including for transactions conducted in the euro currency. But a fragmentation of financial markets is more likely, with banks moving operations out of London to be closer to markets that they wish to serve, increasing the cost of banking in both the UK and the rest of Europe. The UK will remain an attractive center for finance even in the event of a Brexit, but it won’t be able to take its global primacy for granted when it is no longer the gateway to Europe.
A Brexit vote would also increase the pressure on the EU’s efforts to create a banking union, adding to existing financial stability concerns on the continent (fueled by weak balance sheets and high bank funding costs) and raising new concerns about issues such as the resolution of cross-border financial stress. Beyond the banking sector, a weaker environment for foreign direct investment into and out of the UK is likely to dampen growth prospects and have lasting effects both on London and on European financial centers and the economy more broadly.
In finance, as in many other areas, the interconnectedness of nations has increased greatly and will only continue to grow, raising challenges that no country can address on its own. A strong and resilient European Union, with the UK at the core, remains the best path forward.
There are a number of reasons why the United Kingdom would benefit from leaving the European Union. To begin with, the UK could save its net budget contribution to the union, which amounts to about £10 billion (nearly $15 billion) yearly, or just over 0.5 percent of GDP. This is not an enormous sum—but neither is it nothing.
More importantly, outside the EU the UK would be able to drop tariffs on imports from the rest of the world, which it is currently obliged to impose under the EU’s customs union. It could also rescind a raft of EU regulations that have been imposed on the UK.
A third major advantage is that the UK could regain control over immigration. While it remains in the EU, the UK has no power to limit migration from other EU member states. Over the past decade the UK’s population has grown dramatically as immigration has continued at a very high rate. Housing, the education system, and the national health service have all been put under enormous pressure.
“EU growth has been poor because it makes bad decisions; it makes bad decisions because it has bad institutions.”
What’s more, the EU’s persistently low growth rate is extremely disappointing compared to other industrialised countries. Its growth has been poor because it makes bad decisions; it makes bad decisions because it has bad institutions. The common currency, now widely recognised as an unmitigated disaster, is the most blatant example. But the euro did not appear from nowhere—it was actively chosen by the EU and its leaders. Who knows what other mistakes the EU might make in the future?
The status quo is unsustainable. In order for the euro to survive, there will have to be a move toward fiscal and political union among member countries. If the UK stays in the EU, this would leave it in a very uncomfortable position: in a decided minority, on the fringes of the main EU grouping.
On the other hand, a euro breakup could usher in a period of chaos, probably leaving the UK obliged to make extra financial contributions to the EU. Moreover, amid such economic turmoil, the flow of migrants from the continent to the UK would only increase.
In short, the EU has become a club of which the UK should not want to be a member.
Those advocating a British withdrawal from the European Union claim that a Brexit would not impair the safety of either the United Kingdom or Europe. After all, it is the NATO alliance which prods the Europeans into military cooperation and which continues to be supported by U.S. military might—and the UK’s continued membership in NATO is just about the only matter not currently under dispute in London.
But the idea that NATO would flourish after a UK departure from the EU is fanciful. The reality is that both NATO and the EU would be profoundly scarred by such an event, with baleful consequences for European security.
France and Germany would likely make the first post-Brexit moves by immediately pushing new initiatives for closer EU integration. The initial objective would be to reassure themselves that the EU project remains on track and to dissuade other EU members from seeking to emulate the UK’s defection.
“The immediate winner would be Russian President Vladimir Putin, whose main strategic objective has been to crack open Europe’s current security structures.”
Paris and Berlin will direct their immediate attention to defense policy, an area ripe for closer Franco-German cooperation. Both countries will argue that, with the UK out of the EU, a certain duplication of military command structures between NATO and the EU is not only inevitable, but desirable. Though no European government relishes the prospect, this will reignite old debates over whether NATO or the EU should be regarded as Europe’s primary security provider. That will be bad news for the next U.S. administration, which will be under pressure to uphold NATO without disappointing supporters of the EU.
The debate is likely to paralyze both institutions as the EU and UK drift apart. EU officials will struggle to reassert their common foreign and security policy, while the UK will tend toward an increasingly national foreign policy. Renewed refugee pressure on Europe is also likely to contribute to souring UK-EU relations, as the UK will insist on reinstating border controls as quickly as possible.
The immediate winner would be Russian President Vladimir Putin, whose main strategic objective has been to crack open Europe’s current security structures. He may discover to his astonishment that the Europeans are volunteering to do the work for him. Because despite the efforts of France and Germany, a Brexit could well inflict a terminal blow on the EU. Politicians in other member states will come under pressure to hold similar referendums, and many will be tempted to try to negotiate their own special arrangements with the EU.
Thus, a Brexit could condemn Europe to fight for its own survival. It would mean a renewed and desperate struggle to develop cooperative structures at a moment of economic stagnation and rising nationalism. A worse recipe for European security can hardly be imagined.